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The rogue trader and his impact on GIC

~by: Ghui~

In 2007, THE Government of Singapore Investment Corporation (GIC) made its then single largest investment ever - a massive 11 billion Swiss francs (S$14 billion) - to buy a major stake in UBS. The announcement of GIC's investment came on the same day that UBS said it had been hit by a fresh US$10 billion (S$14 billion) in losses from the sub-prime mortgage crisis in the United States, arising from risky loans to people with poor credit histories.

At that point in time, critics panned the investment as risky but were reassured by then GIC deputy chairman and executive director, Dr Tony Tan that GIC had confidence in UBS' wealth management business. He further said that GIC believed in the long-term prospects of the Swiss banking giant.

Fast forward 4 years and UBS is now embroiled in a risk management saga of epic proportions when an employee, Kweku Adoboli, was arrested in London in connection with allegations of unauthorised trading which has cost the Swiss banking group an estimated $2bn (£1.3bn).

Naturally, this would have an impact on GIC, it being the largest shareholder of UBS. However, not much has been said on the actual impact this has had on GIC. The only information that can be gleaned from newspaper reports is that GIC’s performance is assessed based on its overall portfolio and not on individual investments.

According to Reuters calculations based on UBS filings, GIC has lost about 77 percent of its 11 billion Swiss franc investment in UBS made at the end of 2007, excluding dividends.

Given that GIC is a sovereign wealth fund which manages Singapore’s foreign reserves, its performance would be of direct concern to all Singaporeans. It is therefore only appropriate if GIC issues a detailed report setting out the gains and losses that have been made as a result of its acquisition of a stake in UBS. Given that its decision to acquire such a stake was a controversial one to begin with, such a report is especially fitting. The report should also set out the detailed steps GIC intends to take to recoup its losses from this venture.

While GIC has issued a statement to the media stating that it had also made good investments decisions which have offset the losses on UBS and has urged UBS to take “firm” action to restore confidence, more must be done by GIC to restore public confidence in it. With so much of the country’s capital in its hands, it has to be seen to be more accountable and transparent.

As a citizen of Singapore, I would urge GIC to take steps to ensure that more easily accessible information is made available to the public. By this, I do not mean general statements or investor jargon but easy to understand and concise information that the man on the street can digest and comprehend. It is the country’s money after all and every Singaporean has a stake in that.

Perhaps, this is something that the new President, Dr Tony Tan can shed light on. After all, he was the deputy chairman and executive director of GIC at that time and as President, one of his duties is to safeguard Singapore’s reserves.